Tony Byrne: Advice as a profession – not an industry

I have long held the view that most financial planning professionals underrate their value to clients and as a consequence undercharge for their immensely valuable advice and expertise.

Of course the constant barrage of negativity in the media does undermine our cause, especially the endless misselling scandals which are caused by the big bad boys – the banks and other large financial institutions. The FCA’s largely ineffective and misguided approach has not helped our cause either.

You will note I have used the word cause twice. That was deliberate for true financial planning advice is more than just a job: it is a life- long commitment to serving our clients; to doing the best for them; to working in partnership with them and leading them to constantly make better decisions in their personal interests and on behalf of their loved ones. It truly is a cause. In other words it is a profession and an excellent one at that.

I so tire of hearing our profession described as an industry. The industry is the one dominated by banks, insurance companies and fund managers who sell products to customers. Highly qualified, experienced financial planners work in a profession serving clients, not in an industry flogging products. There is a difference you know.

Interestingly, Vanguard has estimated the Adviser Alpha is 3 per cent a year. This is not just based on the superior investment returns an adviser makes for the average client but also the benefit of tax planning and preventing clients from making stupid decisions, as well as a number of other factors.

Tim Hale, in his excellent book Smarter Investing, an absolute must read for any financial planner , has referred to several studies that show the average active fund manager underperforms the market by 2 per cent a year. Staggeringly, the average individual underperforms active fund managers by a further 2 per cent a year.

We recently advised a client with a particularly large pension fund in excess of £1m. It is a Sipp invested with a wrap provider. This client was concerned about investor protection in the event of a bank or collective investment scheme provider failure.

We were pleased to report to him that the wrap’s bank was Government-owned so “safe as houses.” We also researched the incidence of failures of unit trusts or Oeics which had resulted in clients’ financial losses. We could not find any. We checked with the Investment Association and it had no record of failure either apart from Barings Fund Managers. But even then no client monies were lost – only the bank’s customers lost out.

The fact that unit trusts and Oeics have large banks as nominees helps security tremendously. The fund managers in the event of failure cannot touch the money. There was still the issue of £50,000 compensation per fund management company so we got round that one by diversifying his holdings.

Of course there could still be fraud committed by a fund manager, as was the case with Morgan Grenfell a number of years ago. But in that case the bank bailed out its fund management arm.

This is just one example of the professionalism and financial security we give our clients. In my experience, speaking as an ex-accountant, the value we bring to clients is far greater than the value provided by other professionals such as accountants and solicitors.

So be proud of being a financial planner. This is a great profession which, in my opinion, will be the pre-eminent one of the 21st century.

Tony Byrne is financial planning director at Wealth And Tax Management and author of Wealth Magic

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